Many people are getting excited about the Government’s pre-election promise to exempt electric cars from Fringe Benefits Tax (FBT) as of 1 July 2022. But before you rush to order your new vehicle, there are a few considerations for you to take into account.

While this measure is expected to take effect shortly, there is no legislation for this yet – not even in draft – and parliament’s next sitting days have not been announced. This means any new legislation will no doubt need to be retrospective to have effect from 1 July 2022.

The exemption is proposed to apply only to electric cars below the luxury car tax threshold for fuel efficient vehicles ($84,916 in 2022/23). Interestingly, the Government recently noted that there were no electric cars available in Australia for under $40,000, and just five for under $60,000. The Government’s ambition is that the FBT exemption, along with import tariff concessions and other measures, will encourage the uptake of electric cars in Australia. But the impact may be curtailed by availability. That’s why this measure is proposed to be reviewed after 3 years, after reflecting on the take up of electric cars by that time.

It remains unclear whether the proposed exemption is to apply only to vehicles first purchased or leased after 1 July 2022, or whether it will also apply to second hand vehicles. If an employee owns an electric car and then enters into a sale and leaseback arrangement in order to salary package the car, it’s yet to be confirmed whether this is intended to meet the criteria for FBT exemption.

For qualifying cars, employees should be able to benefit from tax-free salary packaging of all the lease and running costs. This should also have no impact on other salary packaging arrangements for employees of not-for-profit employers. For instance, if the annual lease and running costs are $25,000 and the employee earns between $120,000 and $180,000 per annum, their tax savings could be nearly $9,000 every year.

We are eagerly awaiting further news on this measure and will be sure to spread the word and our further insights when any announcements are made.

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